Arnold Schwarzenegger stood, his hands folded in front of his muscular frame, looking as if he had stepped directly out from the big screen. In the same intimidating pose as the Secret Service men hovering in the background, California's celebrity Governor cuts a beefier figure than his erstwhile bodyguards.

It is a jarring sight - The Governator in the flesh. The jutting jawline, perma-tan and thick Austrian accent are iconic for action movie fans across the world. Though he is now a politician responsible for a state with the eighth largest economy in the world, you still expect him to growl 'I'll be back!', not 'Balance the budget'.

Moments earlier Schwarzenegger had walked from behind a blue curtain to kick off a vital campaign event in the state capital of Sacramento. 'Good to see you!' he exclaimed to a group of sober-suited anti-tax crusaders who had lined up to endorse his re-election bid. Then he spied a pack of journalists and cameras. 'Lighten up!' he commanded. 'It is all good news once again!'

Arnie was in a good mood. He joked, pressed the flesh and took questions from reporters. It was a typical performance, exuding the confidence that comes from being comfortably ahead in the polls. Most believe that Schwarzenegger will win re-election in November - something unimaginable just a year ago.

Back then, Schwarzenegger was in deep trouble. His ambitious reform plans had hit the buffers. He looked powerless and adrift. Californians of all political stripes had begun to doubt the wisdom of electing to their highest office a man famous for playing a killer robot.

Not now. Over the past six months Schwarzenegger has embarked on a wholescale political reinvention. He has pushed environmental policy to the front of his agenda and distanced himself from the White House.

So successful has his revamp been that Schwarzenegger has managed to split one of America's most reliable liberal bastions: Hollywood. Some of the biggest movers and shakers have turned their back on years of Democratic support to back him publicly. Yet perhaps Schwarzenegger's comeback should have been as easy to predict as one of his movie plot lines. For a man who made Terminators 1, 2 and 3, there was always going to be a sequel to The Governator.

John Campbell is the reason that Schwarzenegger is winning. A registered Democrat in a state where Republicans make up less than 40 per cent of the electorate, Campbell, and thousands of other Californian Democrats, are happy to vote for Arnie the Republican. 'He was a reasonable actor but he's been a much better governor,' the banker said on his lunch break in Long Beach, a seaside suburb of Los Angeles.

To win, Schwarzenegger has to persuade middle-ground independents and right-wing Democrats to back him. So his policies are far from the Republican issues dominating national politics. Schwarzenegger does not get involved in disputes over evolution or abortion and does no kowtowing to the evangelical rightwingers.

Schwarzenegger harps on themes Democrats listen to: the environment and small businesses. He goes against national Republican policy on stem cell research, which he supports in defiance of a White House veto on funding.

His biggest coup has to be winning over some of Hollywood's leading lights. In the rest of America, Republicans slam Hollywood as a liberal stronghold out of touch with heartland values. But, for this Republican, they number some of his most notable fans. A host of top directors and producers has been coming out to endorse Schwarzenegger, including Steven Spielberg, James Cameron, Haim Saban and Jeffrey Katzenberg, Jerry Zucker, who was behind the Airplane! movies, and Bud Yorkin. Many have been among the most reliable and generous Democrat donors. Saban spent $200,000 fighting the 2003 recall election that brought Schwarzenegger to power.

Schwarzenegger has split Hollywood's usually unified front. Supporters of his opponent, Democratic state treasurer Phil Angelides, have come out fighting. His campaign has cited more than two dozen celebrity backers, including Barbra Streisand, Diane Keaton, Will Ferrell, Laura Dern and Matt Dillon.

Angelides staffers say Schwarzenegger has just tapped his old mates to get support. 'He has become a fake Democrat in a Republican power tie and a few of his friends in Hollywood seem to be buying his new act,' a campaign spokesman said.

But there is no denying that Schwarzenegger's style - if not always his substance - is a very different Republicanism from that on offer in the rest of the country. 'People forget that there are other sorts of Republicans out there,' said Professor Shaun Bowler of the University of California. Schwarzenegger is definitely different.

While national Republican strategists attack gay rights, Schwarzenegger is socially liberal and at ease with California's powerful gay lobby. His chief of staff is gay and so is his personal assistant. He spends more time during the week with those two gay staffers than he does with his wife, Maria Shriver (her chief of staff is gay, too).

Schwarzenegger recently spoke to a Republican gay rights organisation and told the crowd in his booming Teutonic voice: 'I love all of you!' It is hard to imagine George W Bush or Dick Cheney doing that.

Schwarzenegger's political career has been like a Disneyland rollercoaster. He roared into power in the bizarre circus that was 2003's recall election. He promised big change and bipartisan support. It worked for a few months and then collapsed. When a budget was not enacted in time he taunted Democrats as 'girlie men'. Then he went directly to the people, holding hugely expensive public ballots aimed at curbing the power of teaching unions and other labour groups. Millions of dollars were spent by both sides. Schwarzenegger lost every time.

He reshuffled his staff and adopted a less ambitious agenda that managed to get laws on the books. Then, most importantly, he went green. The change was most obvious on his campaign bus. Out went the brash red, white and blue and in came a glorious image of Yosemite National Park. He touts the green line constantly. 'California can show true leadership in protecting the environment,' he told the Sacramento meeting, which was ostensibly about tax cuts.

But it is not all talk. Earlier this month, Schwarzenegger and Tony Blair announced an agreement to bypass the Bush administration with a bilateral approach to fighting global warming. Schwarzenegger is essentially conducting his own foreign policy. He wants California to cut its greenhouse gas emissions to 2000 levels by 2010 and, as California is the twelfth largest emitter in the world, that is no small goal.

Schwarzenegger has endorsed research into greener cars. He has unveiled a 'bioenergy plan' to boost energy production from alternatives such as ethanol. But he is treading carefully so as not to antagonise his Republican big business backers. 'The challenge for us is showing how we can protect the environment and also protect the economy while we do so,' he said.

It is a campaign that has so far seen Schwarzenegger easily pull ahead of his opponent, who has appeared short of money and ideas. In a state where many value razzmatazz, Angelides's efforts have failed to inspire. He is a long-time Democratic insider and his day job involves complex issues of finance, bond sales and pensions. His speaking style is seen as too caustic and he has been lambasted in the press for frequently mentioning his Harvard education. In the best of times he would perhaps have been an average candidate. Faced with a man whose celebrity is known planet-wide, these are far from the best of times.

But on the streets of Hollywood there is real anger. California faces huge social issues and large swaths of genuine poverty. The real Hollywood is a down-at-heel area of strip malls and dowdy bars. The celebrities all live in Beverly Hills or Malibu. Few good words are to be found about the Governator on the streets. Standing on Sunset Boulevard, film student Tony Bainbridge has short shrift for Schwarzenegger's conversion to green causes. He points out that this is the man who almost singlehandedly brought the gas-guzzling Hummer to popular attention. 'He's just another big rich Republican driving a big car,' Bainbridge said.

Here Schwarzenegger is seen as a poor joke. He is the bad punch-line to 2003's freak show of candidates. He is not a moderate Republican. He will forever be the former star of Conan the Barbarian. 'Californians just go for the whole movie star thing. They can't help it at times, but it is insane. They like the strong-man image. A guy like Angelides isn't perfect, but at least he's a real politician,' said Gabriel Jacobs, an entertainment industry executive. Certainly, behind the Democrat-friendly spin, Schwarzenegger is a true Republican, even if not in the Bush mould. On the environment, his words often far exceed his actions. Last year he lopped nine staff from a well-respected energy programme. He has halved funds for wild salmon restoration and eliminated funding for state fish hatcheries. He slashed $17 million from a $31m 'Natural Resources Stewardship Package'.

He has cut money for staffing and maintenance in state parks. He is also facing huge business pressure to pare back his ambitions for cutting greenhouse gas emissions and has shown every sign of ceding to it as the legislation takes shape. He has backed Big Oil in its fight to stop it being forced to pay taxes to fund alternative energy research.

In truth, many would say, Schwarzenegger's success is all smoke and mirrors. On immigration, he speaks movingly about his own immigrant story and the need of America to look after its immigrants and give them a job and a chance. And then he sends National Guard troops to the Mexican border. 'On many issues he does not so much sit on the fence, as jump from one side to the other,' Bowler said.

Back in Sacramento, Schwarzenegger basked in the moment as a succession of businessmen hailed his record. They painted the prospect of an Angelides win as a nightmare. 'It will bring California back into the fiscal dark ages,' thundered Lew Uhler, head of the National Tax Limitation Committee.

Schwarzenegger beamed and then took questions. One reporter pressed him on how he could pose as a tax-cutting governor when he had raised college fees for many Californians. It was a fair point. 'What is the difference between a fee and a tax?' the reporter demanded. Schwarzenegger stepped aside. 'I have an expert here who can answer that,' he said as a grey-suited businessman stepped up. The man launched into a reply laden with jargon. It was incomprehensible. When he finished, Schwarzenegger said: 'That is my position. I could not have been more articulate.'

It was a bizarre moment of political theatre and completely successful. The press corp laughed at the stunt and moved on to more friendly issues. Then Schwarzenegger brought the proceedings to a close. With another broad grin he declared: 'Well, now I am going to go off.' With that, he disappeared to pose for pictures. He was like a latter-day Wizard of Oz: a master of illusion and the undisputed King of La La Land.

In his own words

'I see California as the golden dream by the sea. Perhaps some think this is fanciful or poetic but to an immigrant like me who, as a boy, saw Soviet tanks rolling through the streets of Austria, it is not fanciful.'

'Well, there was no sex for 14 days.' On getting the cold shoulder from his wife after backing President Bush at the Republican Convention

'To those critics who are so pessimistic about our economy, I say, don't be economic girlie men!' At the Republican convention

'It's the most difficult [decision] I've made in my entire life, except the one in 1978 when I decided to get a bikini wax.' On running for governor.

'I can look at a chick who's a little out of shape and if she turns me on, I won't hesitate to date her. If she's good she can weigh 150lbs (11 stones), I don't care.' In a 1977 interview

'My friends don't want me to mention Kurt's name, because of all the Nazi stuff and the UN controversy, but I love him so thank you, Kurt.' On his friend Kurt Waldheim, the Nazi war criminal